DBS Posts Solid Q3 Result, Maintains Positive Outlook for 2023

DBS Group’s third-quarter result was solid, with net interest margin and net interest income trending above our expectation. Net profit was up 32% against the same period last year to SGD 2.2 billion, with net interest margin increasing 32 basis points against last quarter to 1.90%, with year-to-September net interest margin at 1.65%. The bank expects net interest margin to reach 2.25% by mid-2023, assuming the U.S. federal-funds rate peaks at 4.75%. We edge our 2022 forecast higher to 1.73% from 1.72% for the full year, and 2023 forecast to 2.14%, from 2.06%, but normalize our long-term assumption to 2% by 2026—the last is unchanged from our previous forecast. The bank’s outlook for 2023 remains positive with double-digit fee income growth guidance, supported by wealth management and cards income. We note that the high growth is supported by the Citi Taiwan acquisition, which is expected to close in 2023. The bank reiterated that loan growth in 2023 would grow at a mid-single-digit rate and return on equity is expected to be above 15%. Our fair value estimate of SGD 41 is unchanged with the higher net interest margin assumptions for 2022 and 2023, offset by higher operating expenses in 2022 and 2023. We have also lifted our credit cost assumption for 2022.